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Government
postpones IMF reviews under stand-by agreement
At the
beginning of August, the government decided to postpone until early 2005
the mandated reviews by the International Monetary Fund (IMF) under the
current terms of the US$ 13.3 billion stand-by agreement approved in
September last year. As a result, further IMF disbursements are
halted for the time being. Officials announced that Argentina
intents to finalize the debt restructuring with private creditors before
resuming the IMF review process but that payments to multilateral
creditors would continue to be fulfilled.
The
decision was an attempt to avert an explicit negative review by the IMF
and the subsequent denial of further disbursements from the Fund.
The government argued that the compliance with key economic targets
related to fiscal and growth objectives was sufficient to warrant the
disbursement. However, Fund officials remained firm in their
assertion that they believed that the government has not complied with
explicit IMF targets of the agreement, such as the renegotiation of
public utility contracts, reforms to the current co-participation
revenue arrangement between the federal government and the provinces and
advancing in the debt restructuring with private international creditors.
By
putting the IMF agreement on hold, the government is now under pressure
to advance in negotiations with bond holders. High debt servicing
obligations to multilateral creditors in the coming months, which had
partly been financed with the IMF disbursements, must now be fulfilled
through limited national sources and will force authorities to progress
on structural reform in order to regain access to IMF and other
multilateral institution’s disbursements. Further persistence of
the current debt stalemate will maintain uncertainty over economic
prospects and delay the investments needed to sustain the current robust
growth trajectory.
Economic
activity healthy but slowing
According to the National Statistical Institute (INDEC), the monthly
indicator for economic activity (IMAE, Estimador Mensual de Actividad
Económica) increased 7.5% in June over the same month last year.
The June figure was well above the 4.8% increase observed in the prior
month and lifted growth for the second quarter of the year to 6.0% over
the same quarter last year. The second quarter figure was well
below the 11.2% growth pace observed in the first quarter of the year.
A slowdown was generally expected - the Consensus had second quarter
growth at 7.6% - given the increasing comparison base over the same
period last year, when the cyclical recovery was already in full swing.
In seasonally adjusted terms, economic activity actually declined over
the prior quarter by 0.2%, which was the first drop registered since the
first quarter of 2002.
Industrial
output remains robust but moderating
More recent data show that industrial production growth is slowing in
the third quarter. In July, output rose 5.2% over the same month
last year, which was less than half the 11.5% registered in the prior
month. Aside from tobacco and rubber/plastic, all sub-sectors
experienced positive expansions with motor vehicles (+69.2 %
year-on-year) and printing/publishing (+25.8% yoy) leading the way.
A month-on-month comparison confirms a moderation in industrial output,
as activity dropped 0.20% over the prior month in seasonally adjusted
terms – the second decline in output observed this year.
Private
consumption slowing despite higher real incomes and low interest rates
Supermarket sales data indicate that private consumption is also
beginning to slow from the strong growth rates observed earlier this
year. In June, real supermarket sales rose 5.4% over the same
month last year, which represented a deceleration compared to the prior
month, when activity had grown 11.3%. The moderation was most
pronounced in household goods, as growth remained very strong in
clothing/textiles and household electronics. |
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